Let’s wrap the week with a focus on value in the energy space. Now, I’ve been looking across the sector after we talked about Chevron yesterday. With the focus today on options expiration for January, it’s time to look for a rebound across the markets and progressively higher oil prices on the horizon. That puts small-cap stocks in focus.
Defining Small-Cap Stocks
As you know, there are multiple capitalizations of stocks that trade every day. I define them according to the trading levels of Finviz and categorize them by value in GuruFocus.
They are as follows:
- Mega-cap: Over $200 billion
- Large-cap: $10 billion up to $200 billion
- Mid-cap: $2 billion up to $10 billion
- Small-cap: $300 million up to $2 billion
- Micro-cap: $50 million up to $300 million
- Nano-cap: Up to $50 million
The large-cap space is where most investors tend to focus. You have producers, midstream players, and plenty of refiners in that arena. The midcap space has plenty of great options as well.
But the small-cap space is where I like to focus. We’re talking about stocks with capitalizations under $2 billion that can appreciate from strong growth, improved fundamentals, and strong management.
To the Screener
I’m looking for stocks that have a potential upside of 20% or more over the next 10 months.
That brings me to Earthstone Energy Inc. (ESTE). At $13.11, the company currently has a price target of $17.50 among Wall Street analysts. However, it just received an upgrade from Truist to $23 per share.
The oil-and-gas producer’s main ts are located in the Midland Basin of West Texas and the Eagle Ford trend of south Texas. It’s also expanding production in the Delaware basin to take advantage of the significant amount of natural gas exports that will transpire in the years ahead.
Shares have been on a solid run over the last few weeks thanks to the strength in oil and gas prices. As the company sells oil, it can start to pay down debt and improve its balance sheet. That will be positive momentum for the company. Be patient here, and look for there to be a few setbacks now and then. These pullbacks create buying opportunities that you might not find in other areas of the supply chain.
Next week, I’ll be back home in my office. We’ll start talking about new ways to tackle the commodity space in the months ahead.